Economics can be defined as the study of the production and distribution of goods and services within a society. However this is a very broad definition that may seem little helpful for understanding what economics is really about, especially for beginners.
In order to comprehend the given definition we first need to be able to think like an economist, at least to a certain degree. Thus, to start off it seems useful to take a look at some of the most basic economic principles, before diving into the world of fancy definitions and technical terms.
Since this is supposed to be a brief introduction we will focus on the three most fundamental principles here.
There are not enough resources for everyone's wants. Most resources are limited and there is only a certain quantity available for distribution. However people essentially have unlimited wants for those resources and hence try to get as much of them as possible (In other words: more is always better).
Because of the scarcity mentioned above, people are forced to make choices, since they cannot get everything they desire. This may be obvious when it comes to money (i.e. "Should I spend those 2$ on ice cream or on an apple?"), but holds true for all decisions we face in our life. For Example: On a sunny day you could either spend the day at the beach, or have a nice barbecue with your friends. If you chose the barbecue you obviously can't go to the beach at the same time.
This term describes the value of what has been given up in order to get something else. Again this does not necessarily have to be a monetary value. In our example above, the opportunity cost of having a barbecue would be not being able to be at the beach at that time. In other words, opportunity costs are the possible benefits you could have received by taking an alternative decision.
People can't get everything they want because resources are scarce. Thus they have to take decisions and deliberately forgo certain things. Those things are then called opportunity costs.
Keeping these three simple principles in mind, we can now look at the world in a different way and think more like economists. This will make it easier to understand economic behavior as it gets more complex (and even more interesting).
Labels: Basic Principles, Economics, Introduction, Opportunity Costs, Principles, Scarcity, Trade-offs